Sacramento, CA – The Senate Governance and Finance Committee voted today to approve Senate Bill 38, a bill authored by Senator Carol Liu to create a state refundable Earned Income Tax Credit (EITC) that would help working families make ends meet and lift hundreds of thousands of Californians out of poverty.

“This tax credit will help struggling families, increase upward mobility and rebuild the middle class in California by giving low- and middle-income earners more purchasing power to spend, save, and recover from economic hardship,” said Senator Liu. “This significant investment in California’s working families will help move our state forward.”

Senate Bill 38 creates a new state tax credit that builds on the federal EITC, which is one of the nation’s most effective tools for reducing poverty among working families. Research shows that the EITC benefits poor children by raising family income, boosting academic achievement, and improving health and well-being. Half of all states have created a state EITC – but California has yet to do so. If SB 38 were enacted, California would have the strongest poverty-alleviating EITC in the nation.

The bill establishes a refundable state EITC equal to 30 percent of the federal EITC for eligible individuals with qualifying children. The average state credit for families with children in the bottom fifth of the income distribution would be $1,045, according to estimates by the Institute of Taxation and Economic Policy.

“At a time when more than one in four California children live in poverty, SB 38 offers California the opportunity to reduce the state’s high poverty rate by building on a proven policy to create refundable California Earned Income Tax Credit,” said Alex Johnson, Executive Director of Children’s Defense Fund-California. “This is an investment we must make now to improve child health and well-being and protect children against the lifelong consequences of poverty.”

SB 38 would also improve upon the federal EITC to better serve low-income childless workers. The bill would provide a state credit equal to 100 percent of the federal credit for eligible individuals without qualifying children, supplementing what is currently a very minimal federal benefit for childless workers. The average state credit for childless workers in the bottom in the bottom fifth of the income distribution would be $268. Under SB 38, childless workers age 21 to 25 who are currently excluded from the federal EITC would be eligible for the state credit, enabling young adults trying to get on stronger economic footing to benefit.

The bill would give more than 10 million Californians, primarily families with children, an economic boost by allowing them to keep more of their earnings. More than one-third of families with children in California would benefit from the credit. A California EITC as outlined in SB 38 would also help rebalance the state’s tax system, which currently asks low-income families to pay a larger share of their income in state and local taxes than higher-income families.

The bill also establishes a pilot program for advance payment of the state EITC to eligible individuals. Such a program could enable eligible workers to receive increases in their take-home pay throughout the year to avoid financial hardship and pay monthly bills, rather than waiting to receive the credit in one lump-sum check after tax filing.